Savings
PPF vs FD vs SIP: where should ₹1.5 lakh a year go?
If you invest ₹1.5 lakh every year for 15 years, an equity SIP could grow to about ₹58 lakh after tax, PPF gives ₹40.7 lakh tax-free, and an FD gives about ₹34 lakh after tax if you are in the 30% bracket. Each option suits a different need.
₹1.5 lakh a year for 15 years
₹22.5 lakh invested in each case. The SIP is ₹12,500 a month.
| Option | Return assumed | Value before tax | Value after tax | Risk |
|---|---|---|---|---|
| Equity SIP | 12% a year (not guaranteed) | ₹63,07,200 | about ₹57,96,000 | High in the short term |
| PPF | 7.1% a year | ₹40,68,209 | ₹40,68,209 (tax-free) | None, government-backed |
| Bank FD | 7% a year, quarterly compounding | ₹40,98,543 | about ₹33,82,500 (30% bracket) | Very low |
The SIP figure after tax assumes you redeem everything at the end and pay 12.5% long-term capital gains tax on gains above ₹1.25 lakh. FD interest is taxed every year at your slab rate, which is why the FD falls behind PPF even at a similar rate.
If the market gives less
Equity returns vary. The same SIP at 10% a year grows to about ₹52.2 lakh, and at 8% to about ₹43.5 lakh before tax. Even at 8%, it ends up close to PPF, while carrying more risk along the way.
Which one should you choose?
- PPF suits money you won't need for 15 years and must not lose, like a child's education fund. Under the old tax regime, deposits also reduce your taxable income.
- FD suits an emergency fund or money needed within 1 to 3 years. It's easy to break when needed, and it is better for people in low tax brackets.
- Equity SIP suits long-term goals like retirement, if you can stay invested through bad years without stopping.
Many people split their savings, for example PPF for safety and a SIP for growth.
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